stock-based compensation expense associated with the February 2000 repriced options mentioned above and the liability associated with the repriced options totaling $2.6 million ($1.7 million, net of tax) was reclassified to shareholders’ equity during the first quarter of 2006.

The Company uses the Black-Scholes option pricing model to compute the fair value of stock options, which requires the Company to make the following assumptions:

  
 
The risk-free interest rate is based on the five-year Treasury bond at date of grant.
The dividend yield on the Company’s common stock is assumed to be zero since the Company does not pay dividends and has no current plans to do so in the future.
The market price volatility of the Company’s common stock is based on daily, historical prices for the last three years.
The term of the grants is based on the simplified method as described in Staff Accounting Bulletin No. 107.
 
 

In addition, the Company estimates a forfeiture rate at the inception of the option grant based on historical data and adjusts this prospectively as new information regarding forfeitures becomes available.

For the year ended December 31, 2006, the Company recognized $0.5 million in stock option compensation expense and has $0.4 million associated with nonvested awards that will be expensed in the future over a weighted-average period of 1.1 years.

The table below summarizes stock option activity for the three years ended December 31, 2006:

  
 
 
 

The total intrinsic value (current market price less the option strike price) of options exercised during the year ended December 31, 2006 was $2.5 million and the Company received $0.6 million in cash in connection with these exercises.

The following table sets forth pro forma information for years ended December 31, 2005 and 2004 as if stock-based compensation cost had been consistent with the requirements of the SFAS No. 123, “Accounting for Stock-based Compensation”:

  
 
F-11